Fitch Cuts Greece Ratings; Says Default 'Highly Likely' In Near Term

Fitch Ratings downgraded Greece's credit rating on Wednesday following yesterday's Eurozone agreement on a second bailout for the country and said a default is highly likely in the near term.

The agency cut Greece's Long-term foreign and local currency Issuer Default Ratings (IDRs) to 'C' from 'CCC'. The Short-term foreign currency rating was affirmed at 'C'. Fitch also affirmed the euro area Country Ceiling at 'AAA', which is applicable to all euro area member states.

"The downgrade follows yesterday's Eurogroup statement on a second financing programme for Greece including 'private sector involvement' (PSI) and a subsequent announcement from the Greek authorities outlining the terms of the proposed exchange of Greek Government Bonds (GGBs)," Fitch said.

Greece and private sector investors have agreed on the terms of a PSI exchange offer, including a nominal haircut of 53.5 percent to the face value of GGBs. The country has also confirmed the government's intention to introduce collective action clauses (CACs) into those GGBs governed by Greek law.

The rating agency said it regards the imposition of retrospective CACs as a material adverse change in the terms and conditions of GGBs in the context of an imminent debt exchange. It confirmed its assessment that the exchange will be distressed and de facto coercive on private holders of Greek bonds.

"The exchange, if completed, would constitute a 'distressed debt exchange' (DDE) in line with its criteria and consequently yesterday's announcements set in motion the agency's process for reviewing Greece's issuer and debt securities ratings," Fitch said.

The rating downgrade indicates that "default is highly likely in the near term", the agency said.
Further, Fitch said the proposal to reduce Greece's public debt burden through a debt exchange with private creditors will, if completed, constitute a rating default. That would lead to the country's IDR being lowered to 'Restricted Default' ('RD'), it added. The ratings of GGBs affected by the exchange, including those not tendered but restructured under CACs will also be lowered to 'D' ('default').

Following the completion of the exchange, Fitch will move Greece's ratings out of 'RD' category and they will re-rated at a level consistent with the agency's assessment of its post-default structure and credit profile.